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529 E-ditorials

Obviously fed up with the widespread negative press surrounding Section 529 prepaid tuition plans (low returns, inflexibility, etc.), at least one state, Illinois, has decided to fight back. Referring to prepaid tuition plans as "those sleepy, decidedly un-***y state plans that may just be the best addition ever made to the college funding toolbox," the people who run College Illinois! have posted a series of articles on their web site advancing the cause of prepaid tuition. While other prepaid programs (see Maryland (http://www.prepaid.usmd.edu/compare.htm) and Pennsylvania(http://www.patap.org/)) may talk about the benefits of their prepaid programs compared to mutual funds and market investments, no other state as far as we are aware takes direct aim at 529 savings plans in the way that Illinois does. The argument is that the certainty of a state-backed tuition guaranty may suit many people better than the investment risk carried by the 529 savings plans. That point is buttressed by statistics that show the market value of accounts in prepaid tuition plans to be almost ten times the value of accounts in savings plans. One article also notes that the largest 529 savings plan, New York, fell far short of the increase in the Dow Jones average in 1999.

Whether you buy the argument or not, it is interesting and refreshing to see such a strong viewpoint advanced by College Illinois!, particularly when the state of Illinois is getting ready to launch a new 529 savings plans, albeit run by a different state agency. There seems to be little doubt that for many people, the tuition inflation guaranty afforded by the prepaid programs is indeed an attractive feature and that these programs can continue to do well, provided we don't have too many years in a row that the stock market increases by over 20% and tuition increases average 4%.

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